Proposed Rule2021-28396
Reciprocal Switching
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
January 3, 2022
Effective
January 27, 2022
Issuing agencies
Surface Transportation Board
Abstract
The Surface Transportation Board (Board) will hold a public hearing on March 15 and 16, 2022, concerning the reciprocal switching regulations it proposed in this proceeding. The hearing will be held in the Hearing Room of the Board's headquarters, located at 395 E Street SW, Washington, DC 20423-0001. All interested persons are invited to appear. In addition, the Board will pause the period for ex parte discussions, beginning January 24, 2022, and modify the instructions for ex parte communications in this proceeding to permit ex parte discussions with up to two Board members in the same meeting.
Full Text
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<title>Federal Register, Volume 87 Issue 1 (Monday, January 3, 2022)</title>
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[Federal Register Volume 87, Number 1 (Monday, January 3, 2022)]
[Proposed Rules]
[Pages 62-65]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-28396]
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SURFACE TRANSPORTATION BOARD
49 CFR Parts 1144 and 1145
[Docket No. EP 711 (Sub-No. 1)]
Reciprocal Switching
AGENCY: Surface Transportation Board.
ACTION: Notification of public hearing.
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SUMMARY: The Surface Transportation Board (Board) will hold a public
hearing on March 15 and 16, 2022, concerning the reciprocal switching
regulations it proposed in this proceeding. The hearing will be held in
the Hearing Room of the Board's headquarters, located at 395 E Street
SW, Washington, DC 20423-0001. All interested persons are invited to
appear. In addition, the Board will pause the period for ex parte
discussions, beginning January 24, 2022, and modify the instructions
for ex parte communications in this proceeding to permit ex parte
discussions with up to two Board members in the same meeting.
DATES: The hearing will be held on March 15 and 16, 2022, beginning at
9:30 a.m., in the Hearing Room of the Board's headquarters and will be
open for public observation.\1\ The hearing will be available for
viewing on the Board's website. Any person wishing to speak at the
hearing should file with the Board a notice of intent to participate
(identifying the party, proposed speaker, and time requested) as soon
as possible but no later than January 27, 2022. Written comments,
including required written testimony by hearing participants, may be
submitted by all interested persons by February 14, 2022. Hearing
participants are required to submit written testimony by February 14,
2022. Additionally, by the same date, any interested person, including
those who will not appear at the hearing, may submit written comments
addressing matters related to the proceeding, including the areas of
interest identified below.
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\1\ The Board will provide additional instructions and
requirements for facility entry in a subsequent decision. If the
Board determines that the hearing should be held virtually, either
entirely or in part, the Board will issue a subsequent decision by
no later than March 1, 2022, indicating whether that is the case and
containing registration instructions.
ADDRESSES: All filings should be submitted via e-filing on the Board's
website at <a href="http://www.stb.gov">www.stb.gov</a>. Filings will be posted to the Board's website
and need not be served on the other hearing participants, written
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commenters, or any other party to the proceeding.
FOR FURTHER INFORMATION CONTACT: Sarah Fancher at (202) 245-0355.
Assistance for the hearing impaired is available through the Federal
Relay Service at (800) 877-8339.
SUPPLEMENTARY INFORMATION: In Reciprocal Switching (NPRM), EP 711 (Sub-
No. 1) et al., (STB served July 27, 2016),\2\ the Board proposed new
regulations under which the Board would exercise its statutory
authority to require rail carriers to establish switching arrangements
in certain circumstances. The Board received numerous comments in
response to the proposal. In addition, Board members have been
participating in ex parte meetings with interested persons, and
summaries of those meetings are posted in the docket pursuant to the
procedure detailed in the NPRM. To allow interested persons to submit
testimony to update the record, the Board will hold a public hearing
and invite comments.
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\2\ The proposed rule was published in the Federal Register, 81
FR 51149 (Aug. 3, 2016).
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Background
Competitive access generally refers to the ability of a shipper or
a competitor railroad to use the facilities or services of an incumbent
railroad to extend the reach of the services provided by the competitor
railroad. The provisions of 49 U.S.C. 11102 and 10705 make three
competitive access remedies available to shippers and carriers: The
prescription of through routes, terminal trackage rights, and, as
relevant here, reciprocal switching. Under reciprocal switching, an
incumbent carrier transports a shipper's traffic to an interchange
point, where it switches the rail cars over to the competing carrier.
The competing carrier pays the incumbent carrier a switching fee for
bringing or taking the cars from the shipper's facility to the
interchange point, or vice versa. The switching fee is incorporated in
some manner into the competing carrier's total rate to the shipper.
Reciprocal switching thus enables a competing carrier to offer its own
single-line rate to
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compete with the incumbent carrier's single-line rate, even if the
competing carrier's lines do not physically reach a shipper's facility.
NPRM, EP 711 (Sub-No. 1) et al., slip op. at 2.
Reciprocal switching can occur as part of a voluntary arrangement
between carriers, or it may be ordered by the Board. Under section
11102, the Board may require the establishment of a switching
arrangement when it finds that the arrangement either (1) is
practicable and in the public interest, or (2) is necessary to provide
competitive rail service. 49 U.S.C. 11102(c)(1). Section 11102(c)(1)
authorizes the Board to establish the conditions of and compensation
for switching service if the affected carriers cannot reach agreement
on those matters within a reasonable period. The Board's implementation
of section 11102 is guided by the rail transportation policy set forth
in 49 U.S.C. 10101. See NPRM, EP 711 (Sub-No. 1) et al., slip op. at
16.
The Board's current regulations governing reciprocal switching were
promulgated in 1985 by the Board's predecessor, the Interstate Commerce
Commission (ICC), see Intramodal Rail Competition, 1 I.C.C.2d 822
(1985), aff'd sub nom. Balt. Gas & Elec. v. United States, 817 F.2d 108
(D.C. Cir. 1987), and are codified at 49 CFR 1144.\3\ The regulations
provide that reciprocal switching would only be prescribed if the
agency determines that it ``is necessary to remedy or prevent an act
that is contrary to the competition policies of 49 U.S.C. [Sec. ] 10101
or is otherwise anticompetitive,'' and ``otherwise satisfies the
criteria of . . . [Sec. ] 11102(c).'' 49 CFR 1144.2(a)(1). The Board's
regulations also provide relevant factors that the agency shall
consider in determining whether to prescribe competitive access, along
with a ``standing'' requirement. 49 CFR 1144.2(a)(1)-(2). The
regulations do not address how the Board should establish compensation
for Board-ordered switching when the carriers cannot reach agreement
within a reasonable period.\4\
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\3\ 49 CFR 1144 also contains the Board's regulations governing
through routes under 49 U.S.C. 10705.
\4\ The Board's current regulations in Part 1144 also state that
``[t]he Board will not consider product competition,'' and, ``[i]f a
railroad wishes to rely in any way on geographic competition, it
will have the burden of proving the existence of effective
geographic competition by clear and convincing evidence.'' 49 CFR
1144.2(b)(1)-(2). See also NPRM, EP 711 (Sub-No. 1) et al., slip op.
at 27.
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In Midtec Paper Corp. v. Chicago & North Western Transportation
Co., 3 I.C.C.2d 171 (1986), the first case where the ICC applied 49 CFR
1144.2, the agency explained that the key issue under its then-new
regulations was whether the incumbent railroad ``has engaged in or is
likely to engage in conduct that is contrary to the rail transportation
policy or is otherwise anticompetitive.'' Id. at 181. The ICC further
explained that it would find anticompetitive behavior only when an
incumbent carrier had ``used its market power to extract unreasonable
terms on through movements'' or ``because of its monopoly position . .
. shown a disregard for the shipper's needs by rendering inadequate
service.'' Id. The agency's competitive access regulations have not
changed substantively since 1985 and few requests for reciprocal
switching have been filed since then.
The Board proposed modified regulations as set forth in the
NPRM.\5\ NPRM, EP 711 (Sub-No. 1) et al., slip op. at 13-28. Under the
Board's proposed regulations, there would be no need to show
anticompetitive conduct, as had been required in the ICC's Midtec
decision. Rather, under the Board's proposed regulations, the Board
would require the establishment of a switching arrangement when the
switching arrangement either was practicable and in the public interest
or was necessary to provide competitive rail service. NPRM, EP 711
(Sub-No. 1) et al., slip op. at 16.
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\5\ The Board's proposal left in place the Board's existing
regulations that govern through routes. See NPRM, EP 711 (Sub-No. 1)
et al., slip op. at 26, 39-40.
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In assessing whether a switching arrangement would be practicable
and in the public interest under the proposed regulations, the Board
would consider whether the benefits of a proposed arrangement would
outweigh its potential detriments. In making that determination, the
Board would consider all relevant factors, such as (1) whether the
arrangement would further the rail transportation policies in 49 U.S.C.
10101; (2) the efficiency of the proposed route; (3) whether the
arrangement would allow access to new markets; (4) the impacts, if any,
of the arrangement on capital investment, quality of service, and
employees; (5) the amount of traffic that would be moved under the
arrangement; and (6) the impact, if any, of the arrangement on the rail
transportation network. NPRM, EP 711 (Sub-No. 1) et al., slip op. at
18.
In assessing whether a reciprocal switching arrangement would be
necessary to provide competitive rail service, the Board would consider
whether intermodal and intramodal competition were effective with
respect to the movements for which the switching arrangement was
sought. The Board would evaluate the effectiveness of competition using
quantitative and qualitative factors that the Board has developed in
the context of assessing market dominance in rate challenges, but it
would not consider product competition or geographic competition. Id.
at 27.
The Board's proposed regulations also state that reciprocal
switching would not be ordered, even if one or both of the foregoing
standards were met, if the switching was not feasible, would be unsafe,
or would unduly hamper a carrier's ability to serve its customers. As
additional limitations, the Board would require the establishment of a
switching arrangement only when (1) the shipper or receiver was served
by a single Class I carrier; and (2) there was or could be, within a
reasonable distance of the shipper or receiver's facilities, a working
interchange between the incumbent carrier and another Class I rail
carrier. Id. at 19-21.
The NPRM sought comments on two alternatives regarding the
compensation the Board could impose for switching service if the
carriers could not agree within a reasonable time period. Under the
first alternative, compensation would be based on factors such as: (1)
The geography where the proposed switch would occur; (2) the distance
between the shipper/receiver and the proposed interchange; (3) the cost
of the service; (4) the capacity of the interchange facility; and (5)
other case-specific factors. The NPRM asked for comment on whether the
agency should also consider what have been referred to as the incumbent
carrier's lost contribution or opportunity costs. Under the second
alternative, compensation would be based on the cost of providing the
service plus a fair and reasonable return on the capital that was used
to provide the service, analogous to the rental income that applies
when the Board orders a carrier to provide trackage rights to another
carrier (the Board's ``SSW methodology''). (Id. at 25-26); see, e.g.,
New England Cent. R.R.--Trackage Rts. Ord.--Pan Am S. LLC, FD 35842
(STB served Oct. 31, 2017); St. Louis Sw. Ry.--Trackage Rts. over Mo.
Pac. R.R.--Kan. City to St. Louis, 4 I.C.C.2d 668 (1987); St. Louis Sw.
Ry.--Trackage Rts. over Mo. Pac. R.R.--Kan. City to St. Louis, 1
I.C.C.2d 776 (1984).
Overview of Comments
The NPRM generated divergent responses, briefly described below,
from a variety of stakeholders.
Many of the comments address the scope of the Board's authority to
[[Page 64]]
promulgate revised competitive access regulations. Commenters who
generally support the proposed regulations assert that the regulations
are within the Board's statutory authority under 49 U.S.C. 11102(c).
These commenters argue that the showing of anticompetitive conduct
required in Midtec is not required by statute, as section 11102(c)
establishes two bases for reciprocal switching: When ``practicable and
in the public interest'' or when ``necessary to provide competitive
rail service.'' These commenters further argue that the proposed
regulations (1) would not interfere with rail carriers' ability to set
their own rates; and (2) would not offend any statutory right to the
long haul, given that the statutory provision that supports a carrier's
right to the long haul (49 U.S.C. 10705) is expressly conditioned by
the Board's authority to require the establishment of switching
arrangements.
In contrast, commenters who generally oppose the proposed
regulations assert that the regulations would exceed the scope of the
Board's statutory authority. These commenters argue that Congress
authorized the Board to compel switching only upon a showing of
anticompetitive behavior because railroads, as common carriers,
undertake investment and operational responsibilities. These commenters
further argue that, in the absence of anticompetitive behavior, the
Board's order of a switching arrangement would impermissibly interfere
with both the incumbent carrier's right to the long haul under section
10705 and carriers' discretion to engage in differential pricing, i.e.,
to charge rates that vary according to the elasticity of a shipper's
demand.
The same commenters assert that, even if the proposed regulations
fall within the Board's statutory authority, they are misguided as a
matter of policy because they would drive rates down to the point of
undermining carriers' ability to raise sufficient capital, thereby
threatening the ability of carriers to make the investments necessary
to maintain and operate the rail network efficiently and effectively.
They also argue that the proposed approach would lead to switching
arrangements that are economically inefficient.
Commenters who generally support the proposal counter that the
proposed regulations would substantially advance the public interest.
They argue that the proposed regulations would: (1) Foster competition
among rail carriers at a time when (due to mergers and acquisitions)
shippers' rail transportation options are limited; (2) limit the
availability of switching orders to certain locations and certain
conditions, such that the current structure of the rail industry would
largely remain in place; and (3) promote competition and efficiency in
the U.S. economy overall.
Many commenters urge the Board to adopt revisions to the proposed
regulations. Some sought more specific standards or thresholds for when
the Board would require the establishment of a switching arrangement.
Some suggest expanding the availability of Board-prescribed switching,
for example by making it available to shippers who are served by more
than one Class I carrier, shippers who are served by carriers other
than Class I carriers, or shippers who are seeking to switch to a
carrier other than a Class I carrier. Several commenters urge the Board
to adopt streamlined procedures for reviewing requests for switching
arrangements, while others offer proposals on how to allocate the
burden of proof in switching proceedings.
In response to an invitation in the NPRM, many commenters address
what would constitute a reasonable distance between a shipper's
facilities and a location where the Board could require switching.
Commenters who generally support the proposed regulations suggest that
what constitutes a reasonable distance should be liberally construed.
Some advocate a mileage-based approach to determining a reasonable
distance. Others suggest that what constitutes a reasonable distance
should turn on case-by-case operational considerations, such as where a
switch could be accomplished effectively. Commenters who generally
oppose the proposed regulations argue, in contrast, that the Board's
authority to require the establishment of switching arrangements is
limited to terminal areas.
Also in response to an invitation in the NPRM, many commenters
address how the Board should establish compensation for switching if
carriers cannot reach agreement within a reasonable time. Some
commenters assert that compensation should include a contribution to
the fixed and common costs of the incumbent carrier's network that the
carrier would have recouped from the switching shipper. Other
commenters disagree, suggesting that this approach would unreasonably
require a shipper to pay twice for service. Most of these commenters
assert that compensation should be based on the incumbent carrier's
fully allocated cost of providing that service, including a reasonable
rate of return on the capital that is used to provide the service.
Public Hearing
The Board will hold a public hearing in this proceeding on March 15
and 16, 2022. Participants in the hearing may address the issues
described below and any other matters relevant to this proceeding.
Hearing participants are required to submit written testimony by
February 14, 2022.
Comments Requested
Since the issuance of the NPRM and the Board's receipt of written
comments and the occurrence of some of the ex parte meetings, there
have been significant operational changes in and affecting the freight
rail industry. For example, Class I carriers have changed their means
of designing rail service. Commenters may have additional or modified
views on the effects and/or need for the proposed regulations.
To ensure a full and updated record in this proceeding, the Board
invites written comments on several broad areas of interest. First,
comments may identify new developments (i.e., developments that have
occurred since the Board previously invited comments in this
proceeding) that a commenter finds are relevant to a final decision in
this matter and address any change or significant development in a
commenter's views since the previous round of comments. Second,
comments may address topics that were discussed in ex parte
communications that have taken place since October 25, 2016, in this
proceeding.\6\ Participants should understand that the Board has
reviewed the comments filed to date, and that repeating those same
arguments in the written comments is strongly discouraged.
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\6\ A party must submit a summary of an ex parte meeting it
participated in within two business days of the meeting, per the
instructions set forth in the NPRM. Should a party wish to reply to
a meeting summary, it must do so within the time period for written
comments, set out above. To ensure adequate time for parties to
consider ex parte meeting summaries in advance of the deadline for
written comments, the Board expects that summaries of meetings held
between now and January 21, 2022, will be posted to the docket
within five business days of submission, but not later than February
4, 2022.
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Written comments on these areas of interest may be filed by any
interested person, regardless of intent to participate at the hearing,
by February 14, 2022. Those intending to participate at the hearing may
include in their written testimony comments on the issues raised above
and any other matters relevant to this proceeding.
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Pause of the Ex Parte Period and Modification of the Ex Parte Waiver
As discussed in the NPRM, the Board provided a limited waiver of
the ex parte prohibitions that otherwise apply to this proceeding.\7\
Many stakeholders and interested persons have met with Board members,
and summaries of those meetings are posted in the public docket.
Beginning January 24, 2022, the Board will pause the scheduling of any
further ex parte communications until the completion of the hearing set
for March 15-16, 2022. The period for further ex parte communication
will resume following the hearing and will close on April 6, 2022.
Although allowing for the resumption of ex parte meetings will provide
an opportunity for hearing participants and other interested persons to
address any matter that may remain to be addressed following the
hearing, all interested persons should endeavor to make their hearing
presentations, both written and oral, complete so that the hearing will
be as comprehensive as possible, repetition can be avoided, and the
record in this matter can be closed expeditiously.
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\7\ In 2018, the Board revised its regulations to permit ex
parte communications in informal rulemaking proceedings pursuant to
specified procedures. See Ex Parte Commc'ns in Informal Rulemaking
Proc., EP 739 (STB served Feb. 28, 2018); 49 CFR 1102.2(g). However,
those regulations do not apply to informal rulemaking proceedings,
such as this one, that were initiated prior to April 4, 2018.
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The Board will also modify the procedures for such ex parte
communications to allow ex parte discussions with up to two Board
Members in the same meeting, with the consent of the Board Members with
whom the meeting is requested. When the NPRM was issued, the Board was
composed of three Board members, such that two members constituted a
majority, which could have implications under the Government in the
Sunshine Act, 5 U.S.C. 552b. Accordingly, the NPRM specified that if a
party wished to meet with multiple Board members, separate meetings
must be scheduled. NPRM, EP 711 (Sub-No. 1) et al., slip op. at 29.
Given that two members no longer constitute a majority under the
Board's current composition (and provided the composition remains at no
fewer than four members), interested persons may have ex parte
discussions with up to two members between now and the closing of the
period for ex parte communications.
Board Releases and Transcript Availability: Decisions and notices
of the Board, including this document, are available on the Board's
website at <a href="http://www.stb.gov">www.stb.gov</a>. The Board will issue a separate notice
containing instructions for attendance at the hearing and the schedule
of appearances. Once the transcript is available, it will be posted on
the Board's website.
It is ordered:
1. A public hearing will be held on March 15 and 16, 2022, at 9:30
a.m., in the Hearing Room of the Board's headquarters, located at 395 E
Street SW, Washington, DC 20423-0001.
2. The period for ex parte communications in this proceeding will
be paused beginning January 24, 2022, and will resume from March 17,
2022 until April 6, 2022.
3. By January 27, 2022, any person wishing to speak at the hearing
shall file with the Board a notice of intent to participate identifying
the party, the proposed speaker, and the time requested.
4. Written testimony and written comments shall be filed by
February 14, 2022.
5. Filings will be posted to the Board's website and need not be
served on any hearing participants or other commenters.
6. This decision is effective on its service date.
7. This decision will be published in the Federal Register.
Decided: December 27, 2021.
By the Board, Board Members Fuchs, Oberman, Primus, and Schultz.
Kenyatta Clay,
Clearance Clerk.
[FR Doc. 2021-28396 Filed 12-30-21; 8:45 am]
BILLING CODE 4915-01-P
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